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The Global Debt Minotaur: an Analysis of the Greek Financial Crisis

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The Global Debt Minotaur: an Analysis of the Greek Financial Crisis University of Tennessee, Knoxville TRACE: Tennessee Research and Creative Exchange Masters Theses Graduate School 8-2012 The Global Debt Minotaur: An Analysis of the Greek Financial Crisis Steven Alfonso Panageotou [email protected] Follow this and additional works at: https://trace.tennessee.edu/utk_gradthes Part of the Other Sociology Commons Recommended Citation Panageotou, Steven Alfonso, "The Global Debt Minotaur: An Analysis of the Greek Financial Crisis. " Master's Thesis, University of Tennessee, 2012. https://trace.tennessee.edu/utk_gradthes/1291 This Thesis is brought to you for free and open access by the Graduate School at TRACE: Tennessee Research and Creative Exchange. It has been accepted for inclusion in Masters Theses by an authorized administrator of TRACE: Tennessee Research and Creative Exchange. For more information, please contact [email protected]. To the Graduate Council: I am submitting herewith a thesis written by Steven Alfonso Panageotou entitled "The Global Debt Minotaur: An Analysis of the Greek Financial Crisis." I have examined the final electronic copy of this thesis for form and content and recommend that it be accepted in partial fulfillment of the requirements for the degree of Master of Arts, with a major in Sociology. Jon Shefner, Major Professor We have read this thesis and recommend its acceptance: Harry Dahms, Asafa Jalata Accepted for the Council: Carolyn R. Hodges Vice Provost and Dean of the Graduate School (Original signatures are on file with official studentecor r ds.) The Global Debt Minotaur: An Analysis of the Greek Financial Crisis A Thesis Presented for the Master of Arts Degree The University of Tennessee, Knoxville Steven Alfonso Panageotou August 2012 Copyright © 2012 by Steven Alfonso Panageotou All rights reserved. ii DEDICATION I dedicate this work to my parents, Vasilis Panageotou and Diana Panageotou, for all their support and love. Thank you mom for the countless hours of encouragement, and thank you dad for the countless hours of advising and editing. You have been integral to my life and my sociological career. iii ACKNOWLEDGEMENTS This work would not have been possible without the help and guidance of my thesis committee. Jon Shefner, Harry Dahms, and Asafa Jalata have helped me in more ways than they know. I must thank Dr. Shefner in particular for all the constructive criticism, many thesis meetings, and wisdom. iv ABSTRACT Since November 2009, Greece has been mired in financial crisis with little indication that it will be solved in the near future. Research and media accounts have faulted Greece for sowing the seeds of its own financial crisis through fiscal mismanagement extending back to the 1980’s. Successive Greek governments have been criticized for racking up an unsustainable amount of foreign debt. Due to the prevalence of such accounts, European officials and Greek politicians have adopted a nationally oriented strategy to resolve the current crisis. This strategy means that the brunt of the reform effort falls on Greece to neoliberalize its economy in an attempt to fix its macroeconomic finances. In effect, Greece is viewed as ‘the sick man of Europe’ that must be ‘cured’ through structural adjustment measures and through liberalization, deregulation, and privatization of the economy. It is commonly thought that if Greece can fix its macroeconomic finances, then the crisis will be solved. With expected deficit reductions failing to be achieved time and time again and the debt-to-GDP ratio continuing to climb, clearly this reform strategy is failing to provide a real solution to the crisis. This is because the Greek financial crisis is not strictly a national problem. Instead, the situation is a crisis of the eurozone, and any viable solution must take this into consideration. When Greece adopted the euro in 2001, Greece effectively became a peripheralized and indebted country in Western Europe. Greek exports became less competitive when Greece was tied to a hard euro currency, and it became economically rational for Greece to use cheap subsidies offered by the European Union to fund the importation of commodities produced in the core of the eurozone (Germany, France, Netherlands, Luxembourg). In effect, the creation of the eurozone created a massive power imbalance between the strong, Northern European countries and the weak, Southern European countries, Portugal, Spain, and Italy included. Until European officials take this dynamic into consideration and recommend a global reform strategy that takes the structured power imbalance into account, nationally oriented reforms will continue to be implemented in Greece, and the crisis will continue. v TABLE OF CONTENTS CHAPTER I Introduction.....................................................................................................................1 Methods ..........................................................................................................................................................................8 Analytic Induction and the Greek Financial Crisis......................................................................... 13 Chapter by Chapter Summary ...........................................................................................................................17 CHAPTER II The Crisis...................................................................................................................... 20 CHAPTER III Structural Adjustment............................................................................................. 35 Structural Adjustment as a Policy Package.................................................................................................36 The Emergence of Structural Adjustment as a Solution to the Latin American Debt Crisis..39 Resistance to Structural Adjustment..............................................................................................................47 CHAPTER IV Mainstream Explanations...................................................................................... 52 National Explanations of the Greek Financial Crisis ...............................................................................54 Expansion of the Public Sector in the 1980’s................................................................................... 54 Post-Euro Excessive Borrowing ........................................................................................................................65 National Manifestations.......................................................................................................................................70 Corrupt Political System ........................................................................................................................... 73 Inefficient Public Sector ............................................................................................................................ 79 Uncompetitive Economy........................................................................................................................... 83 Progressive Tax System............................................................................................................................. 84 CHAPTER V Contagion and Containment................................................................................... 89 Political Structure Reforms ................................................................................................................................92 Economic Reforms ..................................................................................................................................................92 Tax system reforms.................................................................................................................................................94 Privatization..............................................................................................................................................................94 CHAPTER VI The Structured Power Imbalance......................................................................100 The Effects of Structural Adjustment .......................................................................................................... 100 The Structured Power Imbalance................................................................................................................. 104 The State Crisis of Legitimacy and the Rise of Authoritarianism ................................................... 114 CHAPTER VII Conclusion ................................................................................................................122 References...........................................................................................................................................127 Vita.........................................................................................................................................................138 vi LIST OF TABLES Table 1. Sectoral Composition of Greek Economy (% of GDP)………………74 vii LIST OF FIGURES Figure 1. Sectoral Composition of Greek Economy (% of GDP)……………..74 Figure 2. Exports of Goods and Services (% of GDP)……………………….…..109 Figure 3. Current Account Balance (% of GDP)…………………………………...109 viii CHAPTER I INTRODUCTION Since November of 2009, Greece has been in the midst of its worst financial crisis in its modern history. An exorbitant debt-load, accumulated over decades by fiscally mismanaged governments, has encumbered the
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